Author Topic: kalman slope and intercept  (Read 139 times)

jr

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kalman slope and intercept
« on: September 10, 2019, 06:16:07 pm »
hi what is the kalman slope and intercept picture showing in a backtest..what is a good or bad slope / intercept?

are the lines supposed to be moving the same, crossing, does diverging mean something or ?

i have tried reading a few things including but am a bit lost.

thanks

admin

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Re: kalman slope and intercept
« Reply #1 on: September 11, 2019, 06:09:50 am »
I recommend to get this book, which has a chapter explaining how to apply Kalman filter to pairs trading, what it is and what does it mean: https://www.amazon.com/gp/product/1118460146/ref=as_li_qf_sp_asin_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=1118460146&linkCode=as2&tag=quantitativet-20

TLDR: intercept does not matter too much, slope should not be negative or extreme (values between 0.3 .. 3.0 are perfectly fine). But you should really be familiar with the theoretical aspects first before considering using KF for trading pairs...

jr

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Re: kalman slope and intercept
« Reply #2 on: September 11, 2019, 02:21:05 pm »
thanks for the response and the info.... i have only been looking at the kalman v2 pairs and backtests, not the auto. from what i read in the wiki i should just be leaving the kalman v2 alone to do its thing and it is the better of the 2 available kalmans

i do have that book(chan) but dont understand what i read there about kalman. page 74-82ish right?

when it comes to kalman and the sharpe ratio, just a simpler higher is better right? i am looking for pairs that have a high or consistent sharpe across models, not high on one model and low on another.


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Re: kalman slope and intercept
« Reply #3 on: September 12, 2019, 02:23:04 pm »
Yes, page 74-81 is exactly what inspired us to introduce Kalman Filter based models in the past.

Yes, the higher sharpe ratio, the better...

Both kalman-grid v2 and kalman-auto are state-of-the art pair trading models, experiment with both of them...the only difference between them is the objective function they optimize on-the-fly...